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The Napster of Cinema: Mt. Lebanon firm hopes to cash in on Internet movies SightSound Technology Thursday, March 29, 2001 By Stephanie Franken, Post-Gazette Staff Writer
Correction/Clarification (Published March30, 2001): An article in the March 29 business section misspelled the last name of Scott Sander, the head of SightSound Technologies.
When Scott Sander and Arthur Hair first told music industry executives how the nascent Internet would revolutionize the way the recording industry did business, the executives responded with fear and aggravation. "They looked at us like, 'I have no idea what you are talking about,' " Sander recalled of the 1993 meeting. "They looked at us like, 'We don't like you.' "
But as the huge success of Napster ultimately pointed out, the two co-founders of Mt. Lebanon-based SightSound Technologies knew what they were talking about -- and what the Net could mean not just to the music industry but to Hollywood as well.
Now entertainment companies such as Miramax Films and Comedy Central are testing the technology the pair first pitched to the recording studios: distributing music or videos over the Net.
On Jan. 22, SightSound began selling "Guinevere," the first Miramax Film ever distributed through an Internet download. SightSound has an agreement with the movie studio to sell 11 more online movies.
SightSound last week also took its technology to the big screen, showing a digital movie called "Quantum Project" at Star City Cinemas in Bridgeville. Unlike typical big-screen movies, which are distributed to theaters all over the nation and world on huge reels of film, this movie came to the theater via the Internet -- minus trucks, drivers and film canisters.
It was a milestone that proved the Internet not only can deliver movies to people's homes but also to large cinemas. Theoretically, the film's producer, Metafilmics, could even have distributed the movie to homes and theaters all over the world in an instant. But SightSound's technology ensured the film only could be seen by paying viewers in a Pittsburgh theater.
Hollywood once was reluctant to sell films online for fear that people would figure out how to start swapping the movies for free. Now it has no choice.
It learned a lesson by watching the music industry, which Sander calls "tragic exhibit A." Slow to embrace the Internet as a legitimate way to sell movies, record companies were pummeled by Napster, the outlaw Web site that allowed Net users to swap music online for free.
Hollywood knows it is next. Technology is rapidly improving so that it is only a matter of time before a movie version of Napster springs forth.
"Hollywood and the Internet are on a collision course. The Internet will survive, and so will those in Hollywood who understand it," film critic Roger Ebert wrote last April in a column for Yahoo! Internet Life magazine.
"The movie industry has the same relationship to the Internet today that it had to talkies in the 1920s: plug in or quit."
If Hollywood doesn't manage to beat consumers to the punch by selling movies cheaply online, they soon will be traded illegally without the permission of copyright holders, Sander believes.
So the 17 employees of SightSound, a company that is not yet profitable, have turned their attention away from music and focused on rescuing the movies. It's a move the co-founders felt had to be made for their company to survive.
But the question remains: Does Hollywood need to be saved by a little Pittsburgh company or will it make sense of the Internet on its own?
Unlike the music industry, the film industry is more receptive to SightSound. Sander likes to say his company is nothing more than "a bunch of digital truckers from Pittsburgh" -- that is, movie distributors who use the Internet rather than actual trucks to transport movies to theaters and home computers.
In addition to Miramax and Comedy Central, SightSound's clients include Lyrick Studios, which is selling "Barney" episodes online, Unapix Entertainment and more than 40 other producers and companies.
SightSound was one of the first companies to work the kinks out of the process of selling music and movies online.
"They have been very early and very innovative users of digital media technology," said Microsoft spokesperson Geordie Wilson.
But as the recent dot.com shakeout has shown, starting first doesn't mean finishing first.
And SightSound's biggest challenge may be simply staying in the game. Sander, comparing SightSound to a poker player, said, "Little SightSound has great cards, but very few chips. We don't deal with anyone our own size."
"All of our interactions are with multibillion-dollar media companies or software monopolies."
In an effort to stay competitive from a technology standpoint, SightSound takes co-founder Arthur Hair's "don't fight gravity" approach: it has partnered with Microsoft. SightSound uses the Seattle giant's encryption software to protect movies from being transferred to nonpaying Internet users. It also uses Microsoft's compression software, which shrinks enormous files that store movies down to sizes that can travel fairly quickly over the Internet. SightSound then customizes this technology for Hollywood and other clients.
And while it is small, SightSound has an enviable patent portfolio. Back in 1995, it patented the method by which music and movies now are sold online -- via telecommunications lines. It intends to enforce this patent against some media powerhouses, including Bertelsmann AG in Germany, that have begun selling videos and music online on their own.
While SightSound won't discuss its upcoming legal battles, they promise to be fierce.
If its patents hold up in court battles, SightSound could demand that all competitors pay licensing fees for every video or song sold over the Internet. Or it could sue competitors outright for patent infringement and prevent them from selling movies online, said patent attorneys Rick Byrne and Kent Baldauf Jr. They examined one of SightSound's patents but do not represent the company.
However, enforcing SightSound's patents against giant companies such as Bertelsmann won't be easy, the two attorneys said. "If you go after the big guns, they're going to send out people to scour the earth" to find ways to challenge the validity of the patent, said Byrne. And while patents are presumed to be valid in court, giving a company such as SightSound an initial advantage, many are later found invalid and overturned, he said.
So suing a company like Bertelsmann will expose a SightSound patent to intense scrutiny. As a compromise of sorts, SightSound "could sue to let a competitor know [it is] serious, and at the same time, engage the company in licensing discussions," said Byrne.
And because the stakes are so high with a court battle, even a company such as Bertelsmann may opt to pay licensing fees to SightSound rather than risk losing everything, Byrne and Baldauf said.
To Sander, SightSound's patents have given it a chance as it fights nose-to-nose against multibillion-dollar media conglomerates.
"We are the poster child for why patents are important," he said. "Without patents, all of the things we have done wouldn't have happened."
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